What Is Just-in-Time (JIT)?
Just-in-Time (JIT) Definition
The just-in-time, or JIT, inventory system is a strategy in which orders of raw materials for manufacturing are aligned closely with production schedules.
In a JIT system, companies keep on hand only materials that will be immediately used for the production of goods.
The Purpose of the JIT System
The purpose of the JIT system is to reduce inventory costs by only keeping inventory of materials that are needed for products that are currently being produced.
For example, Toyota, which was one of the earliest companies to adopt this strategy in 1970, may only order car parts from suppliers when they have an order for cars to be produced.
This way, they avoid having to pay to store extra components, as well as preventing unused parts from degrading or depreciating.
Requirements of the JIT System
In order for this method to be successful, manufacturers need to be able to predict demand accurately.
The success of JIT also requires high-quality workmanship, reliable suppliers, and consistently error-free machinery.
Disruptions in the supply chain can easily result in an inability to produce goods, as was the case in 1997 after a fire at a Japanese auto-parts supplier forced them to temporarily halt production.
The lack of parts being supplied caused Toyota, a company that relied on them, to have to halt production for several weeks, ultimately costing them over $1 billion in revenue.
What Is Just-in-Time (JIT) FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.